Alabama County Delays Vote on Largest Muni Bankruptcy

BIRMINGHAM, Ala. — Jefferson County commissioners won’t vote today on filing the largest municipal bankruptcy in U.S. history to escape payment on $3 billion of sewer-system bonds.

Commissioner Jimmie Stephens said members will consider a counter-offer from creditors for no more than a week.

“We’ve waited three years,” he said in a news conference in Birmingham. “I’m willing to give them three, four, five, six days.”

The commission canceled a meeting that been scheduled for 1 p.m. local time to consider filing, Stephens said in his office. The threat of bankruptcy has loomed over Jefferson County, includes state's largest city of Birmingham, for three years as officials sought to spare residents from the ballooning sewer rates that would be needed to finance its debt.

The crisis erupted in 2008 when investors dumped the county’s floating-rate bonds, which were used to refinance the fixed-rate sewer debt, after companies that insured them lost their top credit ratings because of investments in subprime mortgages. Banks providing backstop guarantees on the debt required the bonds to be paid off early, a step Jefferson County couldn’t afford to make.

A bankruptcy filing would leave banks such as JPMorgan Chase & Co., individual investors and the bond insurers Financial Guaranty Insurance Co. and Syncora Guarantee Inc. facing hundreds of millions of dollars in losses. It may also burden county residents with higher taxes or sewer bills, which have risen more than fourfold since 1997 as the cost of the sewer system ballooned.

Michael Corbally, a spokesman for Syncora, declined to comment on the county’s situation in an e-mail. Calls to JPMorgan for comment today weren’t immediately returned.